Does eBay Support All-Time Highs?

With shares of eBay (NASDAQ:EBAY) trading around $56, is EBAY an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

EBay is a global technology company that enables commerce through three reportable segments: Marketplaces, Payments, and GSI. The company provides online platforms, tools, and services that help individuals and small, medium, and merchants around the globe engage in online and mobile commerce and payments. It has created an open source platform that provides software developers and merchants access to its APIs, to develop software and solutions for commerce. Internet commerce has been making major moves in recent years so look for companies like eBay to be well-positioned to capitalize on this movement.

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T = Technicals on the Stock Chart are Strong

EBay has seen a magnificent run since hitting multi-year lows in early 2009. In fact, the stock is getting ready to take out all-time high prices established in 2004. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, eBay is trading above its rising key averages which signal bullish price action in the near-term.

EBAY

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of eBay options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

eBay Options

33.21%

46%

42%

What does this mean? This means that investors or traders are buying a good amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options

Flat

Average

June Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a good amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion…

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on eBay’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for eBay look like and more importantly, how did the markets like these numbers?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

11.76%

21.62%

140.91%

22.22%

Revenue Growth (Y-O-Y)

18.14%

14.77%

23.12%

28.71%

Earnings Reaction

2.4%

5.45%

8.62%

13.24%

EBay has seen increasing earnings and revenue figures over the last four quarters. From these figures, the markets have been excited about eBay’s last four earnings announcements.

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P = Excellent Relative Performance Versus Peers and Sector

How has eBay stock done relative to its peers, Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOG), Overstock (NASDAQ:OSTK), and sector?

eBay

Amazon

Google

Overstock

Sector

Year-to-Date Return

11.28%

8.46%

11.91%

-19.57%

9.31%

EBay has been a relative performance leader year-to-date.

Conclusion

EBay provides Internet commerce services, through its highly popular platforms, to a range of consumers and businesses around the world. The stock is getting ready to take out all-time high prices set back in 2004. Earnings and revenue figures have excited investors who have consistently sent the stock higher. Relative to its peers and sector, eBay has been a performance leader year-to-date. Look for eBay to continue to OUTPERFORM.

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